Good for what ales you

Opinion: Buying a brewer isn't the only way to play the space

JimLowell

New York (MarketWatch) — This month’s strategy piece offers a way to cut through the micro-brew investing froth and end up with more than mere suds.

I will round out that there are a lot of intriguing recommendations by focusing on ways to capitalize on the supply side of the micro-brew demand and demesne.

While not a pure play on beer, my investment ideas reflect ways to profit from the micro-brewing trend, while also benefiting from macro factors that continue to whet demand for the ingredients in each and every can, for the can itself, and for the currency you’ll need to part with to acquire more than a taste.

Before I go there, let me recap 2014 so far. The Wall Street Journal recently reported on the extraordinary year that we are all benefiting from: Everything is up. But everything is up for different reasons. Bonds got a boost at the beginning of the year by at least equal measures of general investor uncertainty and institutional and professional rebalancing, or more accurately counterbalancing, the exaggerated performance difference between 2013 stocks and bonds. As the latter yielded to the former, bonds continued to gain ground. Stocks have largely been driven by fundamentals that haven’t yet kowtowed to geopolitical unrest. Oil has hovered higher as economic growth and geopolitical risk have also risen. Soft commodities have risen on Mother Nature as much as anything.

With everything rising, you’d think investors would be euphoric, perhaps irrationally so. But they aren’t. They’re not buying only one thing en masse (like OTC stocks). They’re not increasing their portfolio’s risk profile. They’re not abandoning bonds. In fact, they’re looking a bit like teetotallers who could use a beer.

That joke aside, what this tells me is that the markets are healthier than any bubble-blowing pundits would have you believe. Still, it would be nice to pour some non-correlated positions through July’s tap — not just to offset the risk of a receding tide in one, some or all classic asset classes, but to take tactical advantage of areas where most investors never belly up to the bar.

Long the purview of institutional investors, currency and commodity investing hit the mainstream marketplace thanks to ETFs like Powershares G10 Currency Harvest
DBV, +0.00%
launched in September 2006, and Powershares Agriculture
DBA, -0.90%
launched in January 2007.

Also, there are now a bevy of single-commodity plays through ETFs and ETNs; for example, you could own either the iPath Pure Beta Aluminum ETN
FOIL, -2.20%
or the iPath DJ-UBS Aluminum Total Return ETN
JJU, -0.40%
as a bet on rising demand for aluminum from two things that seem go hand in hand (truck owners and beer drinkers), although both are extraordinarily thinly traded. I would take a more liquid, six-pack approach to things that go into or go well with (or after) beer: Buy the Powershares Agriculture. DBA’s commodity batch looks like this: Coffee (15%), cattle (20%), Cocoa (12%), wheat (11%) and more.

Going the single-currency route to try and get a handle on the most profitable country quaffs can be done. Trouble is, you could get mugged: China is the world’s largest beer consumer, but with a slowing economy, the yuan — which you can own through the WisdomTree Chinese Yuan Fund
CYB, -0.04%
— seems prone to being, at best, flat.

Brazil and Russia are in the top-five-consumption countries. You don’t want to own the ruble when Mad Dog Putin is foaming at the mouth. You might want to own the Brazilian real, but rising inflation doesn’t tend to mean rising currency rates. Rising rates do. I think the post-World Cup hangover isn’t going to work wonders for the real.

Still, the U.S. is the second-largest consumer of suds, and for this as well as other reasons (my expectations for a moderately faster pace of growth chief among them), I’d put it on my July tab either directly through the Powershares Dollar Bull ETF
UUP, +0.15%
or cued with a bank shot from the Powershares G10 Currency Harvest
DBV, +0.00%
mentioned above.

Inside DBV, you’ll find some thirsty nations: U.S. dollars, euros, Japanese yen, Canadian dollars, Swiss francs, British pounds, Australian dollars, New Zealand dollars, Norwegian krone and Swedish krona. Of the G10 currency countries, I think only Norway doesn’t show up on the top-50 list of beer consumers by either total consumption or per-capital consumption … surprising given that they’ve been making the stuff since the Vikings were in charge and given that Carlsberg-Ringnes is based there.

In the end, the micro-brewing trend may end in a bubble, while I think investing in commodities and currencies could make you the King of beers.

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